"At Rhino Foods, Incentive Pay Is an Expression of Respect"

Rhino Foods, which operates a production facility and warehouse in Burlington, Vermont, is a small business with big ideas for how to treat employees. The company produces handmade ice-cream sandwiches, and its bakery turns out cheesecakes, brownies, and cake pieces. It also developed the cookie dough used as a mix-in for Ben & Jerry's ice cream. Rhino's two production shifts make products to order, with product lines changing from day to day, so workers have to be flexible. Rhino cross-trains its employees to handle baking, ice-cream processing, and cookie dough extrusion.

Management at Rhino Foods is focused on goals. When workers arrive each day, they pass by a bulletin board displaying the day's key performance indicators-measurements identified as important to business success that day. These performance indicators might include costs, sales volume, safety measures, or adherence to the schedule. Ted Castle, Rhino's founder and president, has observed that employees work on the areas of performance the company highlights. For example, when the company introduced safety targets, the number of injuries fell from triple the industry average to less than average.

This manner of operating is based on Rhino Foods' purpose and principles, which are posted on the company's website and in its lobby. Its purpose is "to impact the manner in which business is done." That impact comes from living up to principles in four categories: finances, employees, customers and suppliers, and community. The Employee Principle at Rhino Foods says, "We establish relationships with our employees and their families founded upon a climate of mutual trust and respect within an environment for listening and personal expression. We provide a vehicle for our people to develop and achieve their personal and professional aspirations."

That high-minded language is behind the company's use of goals and rewards. Posting business goals as key performance indicators treats employees with respect by being transparent about the connection between what they do each day and how well the business succeeds. Management practices open-book management and teaches employees to understand the financial measures of the company's success. By focusing on one to three critical measures at a time, the company makes financial literacy more achievable. The effort equips employees to contribute more at work and gives them financial skills they can transfer to their personal lives as well as to broader roles in their community.

Employees receive daily, weekly, and monthly reports of their progress. When the company meets its goals, employees receive a bonus. Use of bonuses in conjunction with open-book management has led to increases in production efficiency, customer service, and product quality. It also has lowered costs associated with workplace injuries, prompted innovation, and developed employees' leadership skills.

1. What form of incentive pay is described in this case? What are the pros and cons of this kind of incentives?

2. What additional types of incentive pay, if any, would you recommend for Rhino Foods?